Friday, July 30, 2010

As part of my new situation with ETF MosaicI've been thinking about another move . . . .
The world is becoming a scary place and being risk adverse by nature I'm always in search of a haven from life's uncertainties.

Taking this lead I'm considering relocating to a more safe and sane location and I can share a recent picture of what the new BZB Trader command center might look like. This waterfront residence has the charm of lapping waves against the shore, and the appeal of isolation, lack of drop-in traffic and other distractions. While this lifestyle may not appeal to everyone, you have to envy the low commute time to work, privacy and scarcity of noisy and nosey neighbors. I know my golf game would suffer immeasurably, but such is the price of paradise.

Following the lead of Gov. Palin I would also plan on aggressively lobbying my local congressmen to sponsor a government grant to build a bridge to the island at an estimated cost of $120 million. We can only hope that scheme would be successful as it would will greatly facilitate occasional visits of my readers and in-laws while at the same time expediting my weekly excursions for provisions.

Thursday, July 29, 2010

I'm going off the grid on this post. It has nothing to do with trading but a lot to do with timely issues that effect the life and death of hundreds of thousands of Americans and our ability to function in an atmosphere of national honesty and transparency . . 2 critical traits that have been woefully lacking in our current administration lately. There's plenty of blame to go around and this is just one vignette to illustrate my point. Truth is sometimes stranger than fiction and after reading this piece by respected Sunday Times of London war correspondent Christina Lamb I'm not sure whether to laugh or cry.

If you're wondering what's really going on in Afghanistan where US soldiers are dying every day for "freedom" here's a little peek under the sheets that our esteemed leaders would probably prefer remain unmentioned. Regular readers know that I live in Oceanside, CA., close to Camp Pendleton, the West Coast Marine training facility, with over 55,000 on base and an adjunct Navy and Marine Miramar airbase close by. While I am not a hawk and make no claim to understanding military strategy I am a humanist and detest and abhor the waste of life and the collateral misery that the wars in Iraq and Afghanistan have produced both in terms debilitating physical and mental injuries and the consequent destruction of family units. I get even more riled up when I think about the $ billions that have been pilfered by our "allies", squandered or stolen during the course of these wars. The problems facing the 50,000 troops now returning from Iraq are immeasurable and long term and I couldn't even begin to catalog them. What is a fact is that today's economy with (realistically) 22% unemployment and continued dim prospects in the civilian sector offers little encouragement for these returning vets except as possible conscripts to guard the Mexican border against the illegals. Is this the future they fought and died for? I hope not, but there it is, with no fix in sight for years to come.
My wife and I play golf at Camp Pendleton at least once a week and one of the unique features of Pendleton it that you never know who you might be paired up with. A few weeks ago we played with a highly decorated Marine pilot with 5 tours in Iraq and Afghanistan. Now my spin on things is that we call in the Predator drones and the Hellfire missiles and just win the war and get the Hell out of there before we lose any more of our guys. "Not so easy" says my new pilot friend. Turns out the war is governed by the ROE (Rules of Engagement), at least pertaining to how our side acts. If the pilot's on a mission and a guy shoots at him from the ground and then runs into a building the pilot can't just send gunfire or a missile into the building. He's actually got to see new muzzle flashes aimed in his direction and even then he may be precluded from firing. The pilot further flabbergasted us when he said that it's not unusual for Marine pilots to be accompanied by Marine lawyers on their missions who advise the pilots whether or not it's OK to drop their ordnance or release a missile. That reminds me of the American Revolutionary war with the British in their red uniforms marching and firing from rigid formation while our forefathers picked 'em off from concealed positions in hopscotch ambushes. Remember how that war turned out? Until our political leaders decide they really want to prevail in Afghanistan or just pack up and leave and let those folks sort things out for themselves we will continue to be faced with the tragic and costly consequences of this farce of a war. This in no way is meant to denigrate our service men and women, many of whom I count as true friends. They are just doing their job putting their lives on the line every day because they have been trained to follow orders. It's the politicians and war profiteers that engineered this mess who are responsible and they are the ones that must bear the blame and the shame.

A few odds and ends here. This month's (August) edition of Futures magazine has some great reads and regular readers know this is a freebie www.futuresmag.com so hop over and check out a unique technical setup to catching falling knives and a top-down approach to selecting high probability ETFs on a rotational basis by Deron Wagner. I'd like to say Mr. Wagner stole this methodology from Jeff and I but I'll just say that great minds think alike. How's that for humble modesty?

A few days ago I mentioned the ETF-aX algorithm that BofA was touting and it's actually taken me 3 hours of phone time to locate Michael J. Lynch, who appears to more elusive than the Scarlet Pimpernel. 3 calls to BofA help centers produced nothing but blank stares and mumbling that they knew nothing about Mr. Lynch or ETF-aX. Sometimes a company can get too big for its britches and BofA appears to be living proof. Love the stock, hate the help centers.The ETF-aX algo is actually a new product of the GES division described below. And, as you can see they provide a suite of tools and services to make you competitive (and well hidden) in the global markets. This, of course, means that you Mr. Retail Trader are going to find it harder and harder to make money in the daytrading arena. This is state of the art trading and as ETF Prophet evolves one of our goals is to offer our subscribers access to some of these programs in concert with Total Trader platform.

Those who have followed the generals over the past 2 weeks may have noted that IWM has been leading the SPY in daily gains. We now have an about face occurring with the IWM leading the SPY down over the past 2 days. That weakness can be seen in absolute % change: IWM -1.74% vs. SPY -.69%. Now part of that weakness might be explained in terms of relative beta, but the situation becomes clearer when we examine the intraday charts of the 2 ETFs. Tuesday I mentioned the possible bullish effect of the PP-R1 intraday pattern. We did see a bullish follow through at Wednesday's open pushing the NYAD to it's daily high but the remainder of the day was characterized by a PP-S1 range that collapsed in the last 2 hours to an S2 level . . with IWM clearly reflecting the weaker pattern of the two, . Those who follow the BZB 2 minute Prognosticator may have also noted that over the past 2 weeks, the closing slope of the Prognosticator has been eerily accurate in forecasting the following day's open. Not necessarily the subsequent close, but it's been spot on for the open.Also of note: a distinctly negative performance by SMH on Wednesday . . reaching S3 levels in the closing hour . . does not bode well for the Qs short term.

Wednesday, July 28, 2010

This is a follow-up on my comments yesterday about a head and shoulder formation seen in a number of the generals. Above is the weekly chart of SMH, which I regard as a reliable leading indicator of Qs momentum. Perhaps a bit surprising following upbeat reports by INTC and CSCO, SMH has not been a Rotator leader recently and MSFT's upbeat report has also been met with net distribution. This may have been a case of buy the rumor, sell the news . . in which case SMH may be out of bullets . . adding fuel to a H&S argument.Now, just for fun, below is a chart of SSO on daily bars and (I know you're going to say this) there's a inverse head and shoulders . . sometimes called a stop and squat. Truth be told, this is a pretty bullish looking chart . . unless that red resistance line turns out to mean something. Sorry I can't make a more convincing case for the bulls but I do believe the matter will be resolved one way or the other by Monday . . you heard it here first.

And, despite an anemic NYAD that pushed many issues into the red, essentially all the majors managed to follow the intraday pattern of SSO on Tuesday, which fluctuated between PP and R1 the entire session. The net skew was actually to the PP side of the band, but the good news for the bulls is that PP provided a powerful VWAP target . . an encouraging technical confirmation.

My trading cohorts have just advised me that the ETF Prophet is about to go live and I want to assure you that we're working hard to provide subscribers with a suite of unique and adaptive tools and links that will allow qualified traders (among other things) to trade commission free, while also providing access to state of the art benchmarked trading algorithms and an auto trading platform for those who want to try the waters.

Tuesday, July 27, 2010

Monday . . same as Friday, including the bull surge at the close. Plenty of upside momo (although volume is sadly lacking) and we may be back on our way to Q2 highs. What could possibly go wrong with this scenario? Plenty . . but let's not dwell on that and spoil and otherwise chipper rally. As we are poised 4 days before month end there's strong odds that July will turn out to be a barn burner ignoring the fact that many of the technicals are sitting dead on mid term resistance right now. A lot of head a shoulder patterns flashing for those that put stock in such formations and we may see some slow down before a big push Friday - Monday.And then there's this little item that may be of interest to my system trader readers. Why fiddle around trying to develop a robust trading algorithm? Just open an account with BofA and let the bankers due the heavy lifting and let the good times roll. I'm still trying to get info on the "algo trading suite" mentioned by Mr. Lynch in the article for those that may be interested.

Monday, July 26, 2010

First of all I have no idea how the Rotator came to rank FXY as #1. The chart looks like it's rolling over and although it's had a nice run the technicals suggest there's not much juice left in this one. I might be wrong but FXY goes in the AVOID box for now for me.On the other hand GDX and by extension SLV look to be picking up as does XLE. FXE is a bit harder to read and seems to still have some doubts about where it should be going . . I'll give that one a little room to breath before jumping in.The positive tone of last week's earnings reports appears to have given new life to a market that was about to capitulate in the face of deteriorating fundamentals and gloomy Fed forecasts. Always keep in mind that the market is driven by expectations and a tendency to interpret data to suit one's own agenda, which is what make it so much fun (and challenging).A long standing joke among quants is that 87% of all statistics are made up on the spot and if you read enough Goldman analysts' reports you might come to believe it. GS probably pulled off one of their best trades in the history of the firm by paying a piddling $550 million fine to the SEC to settle claims of that Goldman helped structure a mortgage security that was designed to fail and sold it to unwitting clients.FYI, $550 million represents 2 weeks worth of GS first quarter profits so the fine is cosmetic at best plus, as part of the settlement GS doesn't have to admit to any wrongdoing. Hey! . . just an honest mistake . . can happen to anybody. Buffett still loves 'em so all's forgiven.

Friday, July 23, 2010

Positive earnings reports appear to have overcome that irrational pessimism spawned by Bernacke's gloomy comments. NYAD readings were WAY up and were sustained all day. Volume was unconvincing but HEY!, in this yo-yo market nobody wants to hang out there too far. Thursday night Don Worden said Tuesday WAS a key reversal day and we're now poised for a new uptrend. OK Don. For my own part I closed my short FXE position at the open and managed to book a whooping .05 gain. Live and learn. I should have played my usual daytrader role and pocketed profits at Wednesday's close. For now I'll just reload and wait for the next setup.

BZF is on a high volume tear and check out the MoneyStream value . . some real accumulation under way as volume continues to fade in the golds and UUP.

As an aside, I live in an over 55 community where I'm the current HOA President, serve on a number of advisory committees and preside over a small investment club. Many of my fellow residents are now VERY conservative with their investments, having suffered major hits to their IRAs and other investments in 2008-09 and are limping along on .5 % CD returns.

So, for the truly risk adverse here's a doctoral paper on an interesting collar strategy focused on the Qs that has consistently yielded almost 10% annually with very controlled risk. Now, 10% doesn't seem like a lot but it is 20 times better than .5% and the system requires very little maintenance. Worth a look IMHO. Also consider the potential returns using QLD, SSO or other blended higher beta ETFs with (and this is key) very robust options open interest chains and .01 option bid/ask spreads.

Disclaimer

Indio, California . . After 27 years of trading, I'm still exploring market dynamics. I daytrade options and sell premium decay longer term using NYAD, VIX & MAs combined with pivots and PSAR triggers. These posts reflect my humble research and are not solicitations to trade. Bob Barnes is not a certified trading advisor or licensed investment professional. I am not liable for damages arising from your investment actions made after reading this blog. Trading is inherently filled with risk and you alone are responsible for your decisions. I do not receive remuneration from web sites, authors, brokers or funds which I may refer to in this blog. Contact me at bzbtrader@aol.com